The sell off in precious metals was created by positioning.
Fractals showed this in advance.
What the 'maps' say next.
The violent
move down in precious metals (
GLD) (
SLV) has left
commentators scrambling for an explanation. Personally, I don't see
the point. If it was down to the Chinese holiday, will you expect a
similar move next time they take a break? Will a dissection of the
reasons of this move prepare you for the next one?
The point is
I don't try and explain every move after the event. I look forward.
What is driving price and how is price reacting when that driver
changes? This can be prepared in advance and analyzed in real
time.
The Fed's
decision to keep rates constant in September was made out to be a
big deal. On balance it was always the most likely outcome, but I
admit to half expecting a shock hike. You can never be sure in
these things. After was all said and done it didn't matter much. As
I concluded in my last article,
In the
end, the decision may go either way, but positioning suggests the
reaction in precious metals will be down. I will sell into any
rallies in gold with a stop over the $1352 high.
The short
lived spike higher on a no hike was really the perfect short. If
the 'no hike' driver was as strong as many made it out to be, why
did the rally fizzle out after two sessions? Price should have been
at new 12 month highs. As I've said before, if everyone expects
something, there is more risk than reward.
Analysis of
positioning and cycles had already prepared me for a brief spike up
and a much larger decline. What happened after the September Fed
meeting just followed a pre-determined 'map', shown here from my
last article. The box foresaw the spike up, and the rest is pretty
self explanatory.
The green
price action shows how S&P500 (
SPY) participants
positioned themselves leading into a big Fed decision in December
2015. Of course the Fed did raise that time and the SPY sold
off.
The decision
this time round was not so important. The point is, the patterns in
gold (black) were so similar leading into the September Fed, the
positioning and sentiment had to be nearly identical. If
participants in SPY had been taking profits on longs and
preparing
for a sell-off, gold participants were likely doing exactly the
same thing over the last few months.
another view on gold from a few days back. Same structure as SPX before the rate hike sell off last Dec. Focus now on Nov/Dec? pic.twitter.com/3AyFvKODi0
article: The Precious Metals Drop Was Mapped Out In Advance - An Update
Posted by steve101 on 7th of Oct 2016 at 05:14 pm
The Precious Metals Drop Was Mapped Out In Advance - An Update
Summary
The sell off in precious metals was created by positioning.
Fractals showed this in advance.
What the 'maps' say next.
The violent move down in precious metals ( GLD) ( SLV) has left commentators scrambling for an explanation. Personally, I don't see the point. If it was down to the Chinese holiday, will you expect a similar move next time they take a break? Will a dissection of the reasons of this move prepare you for the next one?
My view is the move has been in the making for many months. I don't want to waste everyone's time by doing victory laps, but I first wrote about silver topping on August 2nd, and most recently warned ' Precious Metals Could Move Down Regardless Of Fed Decision'.
The point is I don't try and explain every move after the event. I look forward. What is driving price and how is price reacting when that driver changes? This can be prepared in advance and analyzed in real time.
The Fed's decision to keep rates constant in September was made out to be a big deal. On balance it was always the most likely outcome, but I admit to half expecting a shock hike. You can never be sure in these things. After was all said and done it didn't matter much. As I concluded in my last article,
The short lived spike higher on a no hike was really the perfect short. If the 'no hike' driver was as strong as many made it out to be, why did the rally fizzle out after two sessions? Price should have been at new 12 month highs. As I've said before, if everyone expects something, there is more risk than reward.
Analysis of positioning and cycles had already prepared me for a brief spike up and a much larger decline. What happened after the September Fed meeting just followed a pre-determined 'map', shown here from my last article. The box foresaw the spike up, and the rest is pretty self explanatory.
Looking forward
There's a fine line between reviewing previous articles to set context and boasting about their success. Some of my methods may seem strange to new readers so I invite you to read previous articles to get a better idea of the methodology. Basically I look at previous similar events and price patterns to get an idea of what could happen this time around.
Here's another example I posted on Twitter.
The green price action shows how S&P500 ( SPY) participants positioned themselves leading into a big Fed decision in December 2015. Of course the Fed did raise that time and the SPY sold off.
The decision this time round was not so important. The point is, the patterns in gold (black) were so similar leading into the September Fed, the positioning and sentiment had to be nearly identical. If participants in SPY had been taking profits on longs and preparing for a sell-off, gold participants were likely doing exactly the same thing over the last few months.
Here is the same chart today -
This 'map' can act as a good guide for expectations going forward. It suggests a further sell off to $1180. This is a pretty important level as it held three times throughout 2013 and 2014 and a very basic technical analysis can highlight it as significant. I expect some sharp short squeezes along the way, but I will hold my short position for below $1200.
Drivers for a further decline
The fundamental context to me is important, but as I have already said, fundamentals must be analyzed together with price, positioning and sentiment. If gold were to drop to $1180 by the November Fed meeting and the majority of participants thought it would drop sharply on a Fed hike, I'm convinced it would end up actually rallying on a hike. If the Fed were to hike at $1375 after a strong rally and bullish sentiment, I'd expect the exact opposite.
The main drivers in precious metals will continue to be a combination of rates, inflation, and dollar strength. These are all interdependent, and to muddy things further there are other inputs such as NFP and the actions of other central banks. I need to simplify the narrative. Basically I think precious metals will continue to sell off as the break of $1300 is forcing liquidation of late and weak longs. There will continue to be an accompanying story of 'hike fears' in November and December, but at the moment this is no more than noise. What matters to me is the cycle of selling leading into the next meetings.
If precious metals sell off in a way suggesting smart money is starting to accumulate and weak longs have capitulated, I will consider going long. If there are media headlines and a spate of fear mongering articles on how gold will sell further, then I will certainly look to take the other side. Judging by the above map, this may be the case once $1180 is tested.
Confluence
The other 'map' I highlighted in my last article also suggests $1180 is an important level. This is the 'consolidation top' template which gold often follows (the template used is from the 2011 highs onwards).
This fractal projects a move from $1180 back up $1250 (where gold is currently trading) then all the way back down again to form a double bottom at $1180. This is exactly what the first SPY map above projects. Quite an amazing confluence, but after this point the maps diverge (as they must at some point). I'll be very happy to catch what I can of the projected moves before this point.
At the moment I am using the fractals in this article to guide my short positions, but depending on how well they track, I will consider going long under the right circumstances. I will update if and when this happens.
Conclusions
Fractals and historical examples show us how participants are positioned. This is the number one influence on how any instrument responds to predictable events.
I shorted gold after the September Fed meeting based on fractals and will remain short as long as price follows the maps in this article. My ideal target to take profits is $1180, but I will be scaling out below $1200, and will consider longs in this area depending on context.
Note: I do not blindly buy at a price level. Fundamental drivers, sentiment, positioning, and patterns all play a part. Trading can be beautifully simple, but knowing what to ignore is the hard part.
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Disclosure: I am/we are short GLD.
Additional disclosure: I am short gold futures on a daily rollover contract